Oil drops below $45 for first time since OPEC deal
- Author: Wendy Palmer May 06, 2017,
May 06, 2017, 2:15
The market is expecting OPEC and other producers to extend production cuts well into the second half of the year.
"Oil prices tumbled amid concerns over rising United States production despite the high probability that OPEC members will agree to extend production cuts when they meet on May 25th, lthough any likelihood of an increase in the level of cuts remains slim with OPEC officials playing down this possibility", said James Woods, global investment analyst at Rivkin Securities.
The oil price slide accelerated overnight Thursday after OPEC delegates downplayed the chance that the group and other producing countries (such as Russia) would deepen their output cuts when they meet on May 25. However, they likely will, which could cause a short-term pop.
Resurgent US oil production has overshadowed efforts by OPEC and non-OPEC members like Russian Federation to support the oil market. The U.S. benchmark crude fell 4.8 percent Thursday to $45.52, the lowest settlement price since November 29.
Brent traded volumes on Thursday reached an all-time high of almost 542,000 contracts suggesting hedge funds had accelerated cuts in their long positions.
Advisors were among those liquidating their contracts in the day, traders said.
While not on the official agenda at the bi-annual Asia Oil and Gas Conference in Kuala Lumpur from Sunday to Tuesday, the attendance of top oil executives and policy makers including Saudi Arabian energy minister Khalid Al-Falih, ensures the production cut will be a major talking point.
Copper and nickel also weakened, as did iron ore futures, while the spot price (an important consideration in the Australian market) dropped 5.1% to $65.20 a dry tonne, according to Metal Bulletin Ltd.
Dean Rogers, senior technical analyst at Kase & Co, said charts showed the next potential stalling points were US$44.20 for WTI and US$47.20 for Brent. This level is close to the output of Russian Federation and Saudi Arabia. "We continue waiting for this slow-motion, nearly glacial rebalancing of crude".
Oil prices fell by more than 4 per cent to their lowest level since November, wiping out most of the gains achieved after Opec announced its first production cut for eight years. Signs mounted that OPEC's production cuts are failing to clear a surplus of crude. One commentator summarized the situation, saying "There's disappointment that the production cuts we've seen from OPEC and others has not had any impact at this stage on global inventory level ... there is a possibility that oil could be headed to the low $40s range from here".
But many in the market believe steeper cuts are needed to reduce the glut significantly.
FINSUM: If we were OPEC we would not agree to extend our cuts, because it is only a boon to U.S. shale.